Platinum Supply Falls to 13-Year Low as Mines Close: Commodities

Five and ten gram platinum bars are arranged for a photograph. Global production of the metal will fall as South African output drops 3.4 percent to a 12-year low of 4.11 million ounces, Barclays estimates. Photographer: Kerem Uzel/Bloomberg

Feb. 5 (Bloomberg) -- Platinum supplies are falling to a
13-year low as mines in South Africa, the world’s biggest
producer, close and automobile sales reach new highs.

Production will drop 2.7 percent to 5.68 million ounces,
the least since 2000, according to Barclays Plc, which raised
its 2013 shortage estimate sixfold last month after
Johannesburg-based Anglo American Platinum Ltd. said it plans to
idle shafts. At the same time, demand from carmakers, the
biggest consumer of the metal, will increase 0.5 percent in
2013, Barclays says. Investors are buying platinum at the
fastest pace in three years.

Prices already rose about 10 percent this year, following
the same advance for all of 2012, and will average $1,770 an
ounce in the fourth quarter, the highest since 2011, according
to the median of 15 analyst estimates compiled by Bloomberg.
Costs for carmakers will increase because about 53 percent of
all metal mined ends up in catalytic converters.

“Supplies are very tight and it’s a serious situation,”
said Mihir Worah, who manages $110 billion in real return
strategy funds at Pacific Investment Management Co., in Newport
Beach, California. “Not only are there issues on the supply
side, we could see surprises on the demand side as well.”

Platinum Price

Platinum climbed to $1,700.50 an ounce in London this year.
The metal would still have to gain another 35 percent to match
the March 2008 record of $2,300. The Standard & Poor’s GSCI
gauge of 24 commodities added 4.8 percent since the beginning of
January and the MSCI All-Country World Index of equities rose
4.4 percent. Treasuries lost 0.9 percent, a Bank of America
Corp. index shows.

Concern about supply sent platinum prices above gold in
January for the first time since April. Platinum traded above
gold from December 2008 through August 2011.

Global production of the metal will fall as South African
output drops 3.4 percent to a 12-year low of 4.11 million
ounces, Barclays estimates. There was a 394,000-ounce shortage
last year as Impala Platinum Holdings Ltd. shut its Rustenburg
mine, the world’s biggest, and police killed workers striking
over pay at Lonmin Plc’s Marikana complex.

South African producers closed nine platinum-mine shafts
and dismissed 3,332 workers in the second half of 2012, the
Department of Mineral Resources says. Amplats, as the top
producer is known, said Jan. 15 it would idle four shafts and
cut 400,000 ounces of platinum output a year, about 7 percent of
global production, to restore profitability. The company said
last week it would postpone that decision for as many as 60 days
to allow for government and union talks.

ETP Holdings

Hedge funds’ bullish bets rose 69 percent since November
and the net-long position of 40,938 contracts held by Jan. 29
was the most since at least December 2009, U.S. Commodity
Futures Trading Commission data show. Investors bought 4.5 tons
of platinum through exchange-traded products in January, the
most in three years. They own 50.9 tons through the ETPs, 0.2
percent below the Jan. 31 record, and valued at $2.78 billion,
data compiled by Bloomberg show.

While economic growth in China, estimated by Johnson
Matthey Plc as the biggest consuming nation, accelerated for the
first time in two years in the fourth quarter, Standard & Poor’s
said Jan. 31 the country has the highest risk of a downturn
among 32 of the world’s largest economies.

The International Monetary Fund predicts global growth will
climb to 3.5 percent this year from 3.2 percent in 2012 and
forecasts a second year of contraction in the euro area.

Platinum Demand

“The problems have not disappeared as global growth is
uncertain and China is still somewhat cloudy and Europe is
slowing,” said Walter “Bucky” Hellwig, who helps manage $17
billion of assets at BB&T Wealth Management in Birmingham,
Alabama. “It would be difficult to say where the increase in
demand will come from unless we see an upsurge in growth. There
are supply issues but we need demand to drive prices.”

Fewer jewelry purchases and cooling investment this year
mean demand will drop 4.6 percent to the lowest since 2009,
Barclays estimates.

A contraction in Europe poses a risk to consumption because
the region is the biggest market for platinum in catalytic
converters, according to London-based Johnson Matthey. Platinum
is used with palladium and rhodium in the canisters with
honeycomb-like surfaces that convert emissions into less harmful
substances.

Car Sales

Global car sales exceeded 81 million for the first time
ever in 2012 and will advance about 2.5 percent to 83 million
this year, LMC Automotive Ltd., a research company in Oxford,
England, said in a Jan. 28 e-mail. An average autocatalyst
contains about 4 grams (0.13 ounce) of palladium, platinum or
rhodium, according to Johnson Matthey, which has made one in
three of the devices.

Industrial usage from glass production to electrical
manufacturing will grow 3.1 percent this year, compensating for
some of the decline in jewelry demand and investment, Barclays
predicts. Total consumption will climb 2.8 percent next year,
the biggest increase since 2010, the bank estimates.

Amplats will report profit of 1.03 billion rand ($116
million) this year, compared with a loss of 6.68 billion rand in
2012, based on the mean of four analyst estimates compiled by
Bloomberg. The company posted net income of 3.59 billion rand in
2011. Its shares will fall 2.2 percent in the next 12 months
after tumbling 16 percent last year, according to the average of
13 analyst forecasts compiled by Bloomberg. The stock gained 0.5
percent this year to 449.97 rand.

“The cocktail mix is very good for metals that have
industrial use and platinum will be a winner especially because
the fundamentals are so supportive,” said James Paulsen, the
Minneapolis-based chief investment strategist at Wells Capital
Management, which oversees about $325 billion. “The economy is
going to be OK. I would think demand for platinum will be on the
rise.”